Timely Topic: Economist Forecasts Slow Recovery in G-7 Job Markets After Pandemic
According to an economist at The University of Texas at Dallas, labor markets of several Western countries are not likely to bounce back quickly after the economic crisis created by the COVID-19 pandemic.
Based on her recent research on how jobs have returned to the U.S. labor force after recent recessions, Dr. Irina Panovska predicts reemployment might be prolonged and painful.
“This is truly a once-in-a-100-year scenario,” said Panovska, associate professor of economics in the School of Economic, Political and Policy Sciences. “We have experienced upheaval in supply and demand, and psychological shocks. It’s a terrible mix of negative shocks of different kinds.”
The past three economic recoveries in the United States have been markedly different from most postwar recoveries prior to 1990, during which employment returned to its pre-recession level just a few months after a decline in output, Panovska said.
“The typical recovery from earlier recessions was characterized by fast job creation that quickly offset the job losses resulting from the recession,” she said. “In contrast, employment growth was sluggish or negative for months and even years in the past three recoveries.”
One way economists express economic activity is to assign letters of the alphabet to describe the shape of an economic recovery. For example, a “V” shaped recovery would represent an economy that quickly declined, then bounced back almost as fast. An “L” shaped recovery means the economy exhibits a sharp decline and takes a long time to bounce back to previous levels of economic health.
After the COVID-19 pandemic, Panovska anticipates most G-7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) may experience either an “L” shaped configuration or a “reverse radical” recovery, which entails a partial bounce back followed by a second wave of slowdown.
“Based on historical data, reemployment may be prolonged and painful,” she said. “I don’t expect a ‘V’ shaped recovery. Even if we do have a snapback in sales, we may not see a snapback in employment. Consumer demand may not climb back up because of global uncertainty. For example, consumers uncertain about job security are unlikely to make big purchases.”
Ultimately, Panovska said, how quickly labor markets recover will depend on policy.
“Every time you make a forecast, you make it on the assumption the present looks similar to the past,” she said. “The economy is always restructuring. The good news is a lot of technological innovation and improvements in quality of life often come out of difficult economic circumstances.”
Note to journalists: Dr. Irina Panovska is available for news media interviews. Contact Brittany Magelssen, 972-883-4357, firstname.lastname@example.org.